Why you might want to consider moving to a smaller investment bank by 2010
The FSA's new remuneration code will only affect UK banks with more than 1bn of regulatory capital, and City subsidiaries of foreign groups. This means there are a number of investment banks in London not covered by the new rules so, in theory, they could pay their employees whatever they like.
This give the boutiques (another) competitive advantage in securing top investment banking talent, but the likes of Deutsche Bank, Sociéte Générale and BNP Paribas, which only have "branches" in the UK, will also be exempt from the code.
The initial mandatory FSA proposals over multi-year guarantees and deferred bonuses may have been softened to 'guidelines', but Hector Sants is insisting they're just as enforceable.
Chris Page, head of reward services at KPMG, says: "It is no longer a level playing field. You will have those firms affected by the code competing with those that aren't for the same people, and undoubtedly those covered will be less attractive. As a prospective employee, why would you want to limit your earning potential when you don't have to?"
Similarly, Jon Terry, partner and head of reward at PricewaterhouseCoopers, said: "There is a danger a two-tier system of regulation will evolve, putting those that the code applies to at a competitive disadvantage."
Of course, all this assumes that these unaffected banks actually want to bestow generous bonuses on their investment bankers.
BNP Paribas, for instance, is focusing on reining in expenses and bonus accruals are so far lower than last year in spite of stellar investment banking revenues.
And Nicolas Sarkozy's tough line on variable compensation means SocGen will also be reluctant to pay bumper bonuses this year.
Deutsche Bank has been more benevolent, having accrued an average payout of $298k per head for the first half of this year.
However, Bloomberg is suggesting that the new guidelines are likely to result in much heftier base salaries, and that the bulge brackets will develop more "innovative" ways of assessing performance which won't ruffle regulatory feathers.
